California Law Review
Volume 22 | Issue 4
Article 2
May 1934
The Power of an Agent to Bind His Principal-California and the Restatement
Sigvald Nielson
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Recommended Citation
Sigvald Nielson, The Power of an Agent to Bind His Principal--California and the Restatement, 22 Cal. L. Rev. 392 (1934).
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The Power of an Agent to Bind His
Principal-California and the
Restatemen t
the problem be, there exists, in the texts and
F case law on thethough
subject, considerable confusion as to the bases of
UNDAIm
NTAL
an agent's power to bind his principal.1 In many instances the confusion is not so much as to the decision ultimately reached as to the
reasons therefor. Too often such terms as "authority," "apparent" or
"ostensible" authority are seized upon as justifying the result without
assigning to those words any clear meaning. These terms, in turn, are
often reinforced by talk of "secret" or "private" instructions. To these
are then added what, in this field, appears to serve the purpose of a
convenient, if vague, catch-all-the doctrine of estoppel. If further
ammunition is required to justify the result, the doctrine of ratification
is invoked. The entire structure can then be capped by the often
meaningless bromide to the effect that "where one of two innocent persons must suffer by the act of a third, he, by whose negligence it happened, must be the sufferer." 2 When this process of cumulation is
finished the result defies analysis.
Certainly one of the highlights of the recently published Restatement of the Law of Agency 3 is the logical and clean-cut classification of
the bases of A's power to bind P. 4 It is the purpose of this paper to
call this classification to the attention of the profession in California
and in so doing to make, by way of comparison, some observations on
the law of California on this subject.
The appropriate starting point would appear to be the insistence of
the Restatement on the distinction between "power" and "authority."
"Power" is therein defined as
"an ability on the part of a person to produce a change in a given legal
relation by doing or not doing a given act." 6
' A verse in "the peculiar theme song of agency-the liability of the principal
to third persons." Seavey, Book Review (1934) 47 HAv. L. REV. 728, 730,
2 CAL. CIV. CODE §3543.
3 Adopted and promulgated by the American Law Institute at Washington,
D. C., May 4, 1933. American Law Institute Publishers, St. Paul.
4The letters P, A and T will be used throughout as indicating principal, agent
and third party, respectively.
5This distinction is well recognized Iy modem writers on the subject.
1 ME=m, AaGcvz (2d ed. 1914) §712 et seq.; TIFANY, AGMENCY (Powell's ed.
1924) 37, 38; Corbin, Authority of an Agent-Definition (1925) 34 Y.E L. J.
188; Seavey, The Rationale of Agency (1920) 29 YA= L. J. 859, 872. Seldom has the
distinction been given any consideration in case law.
6 RESTATE3MNT OF THE LAW OF AGENCY (Am. L. Inst. 1933) §6.
POWER OF AGENT TO BIND PRINCIPAL
"Authority is the power of the agent to affect the legal relations of the
principal by acts done in accordance with the principal's manifestations of
consent to him." 7
A, having authority, has a power which, as between himself and P,
he is privileged to exercise. It is universally true that P may be bound
by the act of A though the doing of the act by A constitutes a breach
of the fiduciary relation existing between A and P. In such cases P is
bound because A has a power or because P is estopped. A has no authority.
No California case has been found where the distinction between
authority and power is stressed. The Civil Code s defines "actual authority" in substantially the same terms as those used to define authority in the Restatement. 9 "Power" is not defined in the Code and while
the cases often make fugitive statements to the effect that "the agent has
a power to bind his principal," 10 the words "power" and "authority"
are used interchangeably and without any apparent thought of the distinction.1 1
There is but the vaguest suggestion in the Code that the
framers had some notion that there may have been a difference.' 2
The bases of A's power to bind P are set out in section 140 of the
Restatement.' 3 It reads:
"The liability of the principal to a third person upon a transaction conducted by an agent, or the transfer of his interests by an agent, may be
based upon the fact that:
(a) the agent was authorized;
(b) the agent was apparently authorized; or
(c) the agent had a power arising from the agency relationship and
not dependent upon authority or apparent authority." 14
Let us examine these in order.
7 Ibid. §7.
8 CAL. CIV. CODE §2316: "Actual authority is such as a principal intentionally
confers upon the agent, or intentionally, or by want of ordinary care, allows the
agent to believe himself to possess."
9
Note also ibid. §2299: "An agency is actual when the agent is really employed by the principal."
1OE.g, Frasch v. London & Lancashire Fire Ins. Co. (1931) 213 Cal. 219, 223,
2 P. (2d) 147, 148; Walker v. Kimball Fruit Co. (Cal. App. 1929) 283 Pac. 895,
897.
11 See, however, Torvend v. Patterson (1933) 76 Cal. App. Dec. 63, 67,
28 P. (2d) 413, 415. The problem was as to the liability of a retired partner for
the act of the continuing partner. The court says: ". . . but until proper notice
had been given to a creditor, he [the continuing partner] had the power although
not the right, to subject the retiring partner to a liability."
12Thus CAr.. Civ. CODE §2320 speaks of "the agent's power to disobey instructions?' It may be of some significance that the remaining sections in this
article of the Code are all phrased in terms of authority.
13 See also section 141 which deals with "liability based upon other than
agency principles." These are not here considered.
14 One is led to suspect that the Restatement is indebted to Professor Seavey
for this classification. See Seavey, loc. cit. supra note 6.
22
CALIFORNIA LAW REVIEW
The power of an agent who is authorized to bind his principal is
elementary and requires no discussion or citation of authority. It is
equally elementary that in the absence of an agreement to the contrary, P's manifestation of consent to A impliedly carries with it authority to do such things as usually accompany the act authorized, or
such things as are reasonably necessary to effect the purpose of the
authorization.' 5 So far at least there can be no quarrel between the
views of the Restatement and the law in any common law or code
jurisdiction. The situation is the same as though P, personally, had
dealt with T.
Where A oversteps his authority-when he violates his duty to Passuredly P is often bound. Can the result be justified on contract or
agency principles or must we rely on some non-agency doctrine such as
estoppel? Too often the cases leave us in doubt. The answer of the
Restatement is that the principles of contract and of agency are not
exhausted when authority is exceeded and that recourse can, and
should, be had to these principles before invoking the doctrine of
estoppel.
This brings us to "apparent authority." The term is defined as:
-... the power of an apparent agent to affect the legal relations of an
apparent principal with respect to a third person by acts done in accor-
dance with such principal's manifestations of consent to such third person
that such agent shall act as his agent." 16
This definition deserves our particular attention because it gives
a fixed meaning to a term which in the past has been used loosely and
in a variety of ways.17 The essentials to the existence of this power
in A are, a manifestation, or representation, by P to T that A is his
(P's) agent in this respect, and secondly, a dealing between A and T
on this basis. This basis of power contemplates no question of any
detriment to, or change of position on the part of, T. In other words,
while it has in common with the doctrine of estoppel the representation
and reliance it does not go all the way. The basis of P's liability is
contractual and modern writers find no difficulty in squaring the results
with ordinary contract principles.' 8 A Massachusetts case'0 puts it
in this language:
15 How far such "implied" or "inferred" authority goes is a question of
interpretation and is treated as such in the Restatement, sections 32 to 81, incl.
Compare with these CAL. Civ. CODE §§ 2319 to 2326, incl.
1
6Restatement §8. See also section 159 which states P's liability for the acts
of A within his apparent authority.
17 See
Mcm, op. cit. supra note 5, §720 et seq.; cf. TiTrANY, op. cit.
supra note 5, at 63.
18See ANSON, CoNTRAcTS (Corbin's 5th Am. ed. 1930) 8; HouiAND, JuiusPR'DENcE (13th ed. 1924) 263; 1 AfrcHEm, op. cit. supra note 9, §722; 1 WILLisTON, CONTRACTS (1920) §§ 20, 21; Cook, Agency by Estoppel (1905) 5 COL. L.
POWER OF AGENT TO BIND PRINCIPAL
"To lead a person reasonably to believe that you assent to an oral
arrangement is to assent to it, wholly irrespective of fraud. Assent in
the sense of the law is a matter of overt acts, not of inward unanimity
in motives, design or the interpretation of words."
The distinction between apparent authority and power resting on
estoppel may become of importance. Thus, if the basis is contractual,
P is bound whether the transaction is executed or purely executory. So,
if the transaction results in a contract, T is bound, though ke most
certainly is not estopped.20
Turning now to the California Civil Code and the California cases,
we find the term "ostensible," rather than "apparent," authority used. A
comparison of definitions convinces us that they are the same. Ostensible authority is defined 21 to be,
"such as the principal, intentionally or by want of ordinary care, causes
or allows a third person to believe the agent to possess."
Unfortunately for the cause of uniformity, however, a subsequent
provision of the Code22 cuts down the liability of P for the act of A,
acting under
"a merely ostensible authority, to those persons who have in good faith,
and without want of ordinary care, incurred a liability or parted with
value, upon the faith thereof." 23
In other words, to be effective under this provision of the Civil Code,
ostensible authority must be coupled with the additional element necessary to raise an estoppel.24 P's liability in such case is not based upon
Rv. 36; Cook, Agency by Estoppel: A Reply (1906) 6 ibid. 34, 36; Seavey, op.
cit. supra note 5, at 873. Cf. EWART, EsToPPEr- (1900) 473-4; Ewart, Agency by
Estoppel (1905) 5 COL. L. REv. 354; Whittier, Restatement of Contracts and
Mutual Assent (1929) 17 CAiar. L. Rav. 441.
19 O'Donnell v. Town of Clinton (1888) 145 Mass. 461, 14 N. E. 747.
20
T's liability to P where A acts under an apparent authority is provided for
by the Restatement, section 292-and this apart from any question of ratification.
21 CAL. Civ. CODE §2317. Ibid. §2300 defines "ostensible agency" as existing
"when the principal intentionally, or by want of ordinary care, causes a third
person to believe another to be his agent who is not really employed by him."
22 §2334.
23 Itmay be noted that this section is phrased in terms of "ostensible authority" which is defined by section 2317. It contains no reference to section
2300 which defines "ostensible agency." No case has been found calling attention
to this fact and in many cases the three sections (2300, 2317 and 2334) are read
together. The terms "ostensible authority" and "ostensible agency" are used
interchangeably in the following cases: Pacific Ready-Cut Homes v. Seeber (1928)
205 Cal. 690, 694, 272 Pac. 579, 581; Dollar v. The International Banking Corp.
(1910) 13 Cal. App. 331, 340, 109 Pac. 499, 503; Robinson v. American Fish, etc.,
Co. (1911) 17 Cal. App. 212, 219, 119 Pac. 388, 391; Raleigh v. Lee (1914) 26 Cal.
App. 229, 146 Pac. 696; Allen v. San Francisco, etc., Exchange (1922) 59 Cal. App.
93, 96, 210 Pac. 41, 42; Henry Cowell, etc., Co. v. Santa Cruz, etc., Bank (1927)
82 Cal. App. 519, 524, 255 Pac. 881, 882; Fairbanks v. Crump Irrig., etc., Co.
(1930) 108 Cal. App. 197, 209, 291 Pac. 629, 634.
24 Cf. 1 CAL. Juas. (1921) 714: ". . . ostensible authority, at least for con-
22
CALIFORNIA LAW REVIEW
the existence of a contract. Presumably where A acts under "a merely
ostensible authority" T is not liable to P in the absence of a ratification
by the latter. So presumably, P is not liable to T if the transaction is
2
executory. 5
The California cases have with consistency construed the above
sections as requiring an estoppel.26 Language of the type which follows
runs through them all:
"Ostensible authority rests upon the doctrine of estoppel, and its essential elements are representation by the principal, justifiable reliance thereon by the third party, and change of position or injury resulting from
such reliance." 27
".... the appellant [T] is in no position to rely on any ostensible agency
of the bank [A] since he incurred
no liability and parted with nothing of
28
value on the faith thereof."
In California then, we must conclude that the second basis of power
as set out in the Restatement classification, the apparent authority
basis, is missing. To this extent certainly the power of A, in California, 29 to bind P rests upon a narrower foundation than the framers of
venience in discussion, may be divided into strict agency by estoppel and mere
ostensible agency." The distinction here aimed at is not clear and subsequent pages
of the same work fail to make it so. The New California Digest (McKinney's
1930) attempts a similar classification in vol. 1, pp. 606 et seq.
See the distinction made by the Missouri court in Landau Grocery Co. v.
Bank of Potosi (1930) 223 Mo. App. 1181, 26 S. W. (2d) 794, 795. "Apparent
authority is not founded in negligence of the principal but in the conscious permission of acts beyond the power granted, whereas the rule of estoppel has its
basis in the negligence of the principal in failing properly to supervise and control
the affairs of the agent." One may question the usefulness of such a distinction.
25 Cf. Ewart, Agency by Estoppel, op. cit. supra note 18, at 363. Ewart's
opinion appears to be that a mere dealing between T and A is a sufficient change
of position on the part of T to raise an estoppel where the other elements exist.
Surely this is questionable. No case in point has been found.
26Pacific Vinegar Works v. Smith (1907) 152 Cal. 507, 511, 93 Pac. 85, 86;
Hansen v. Burford (1931) 212 Cal. 100, 112, 297 Pac. 908, 913; Herington v. Alta
Planing Mill Co. (1914) 25 Cal. App. 620, 622, 144 Pac. 973, 974; Armstrong v.
Barceloux (1917) 34 Cal. App. 433, 436, 167 Pac. 895, 897; Duerr v. Sloan (1919)
40 Cal. App. 653, 657, 181 Pac. 407, 408; Wellman v. Conroy (1920) S0 Cal. App.
141, 144, 194 Pac. 728, 729; Garcia & Maggini Co. v. Colvin (1921) 53 Cal. App.
79, 84, 199 Pac. 1113, 1115; Zenos v. Britten-Cook Land, etc., Co. (1925) 75
Cal. App. 299, 242 Pac. 914; Pacific Acceptance Corp. v. Jones (1928) 95 Cal.
App. 365, 369, 272 Pac. 1084, 1086; Earle v. De Besa (1930) 109 Cal. App. 619,
293 Pac. 885.
27 Ernst v. Searle (1933) 85 Cal. Dec. 633, 635, 22 P. (2d) 715, 716.
28 Van Buren v. Green (1932) 120 Cal. App. 461, 466, 7 P. (2d) 1079, 1081.
29 California is far from being alone in this respect. See Agency, 2 C. J.
(1915) §§ 26-76. See also Note (1933) 1 CHxcAGo L. REv. 337 where Mr. Wolfberg questions "whether the restatement's distinction between 'apparent authority'
and' authority by estoppel is justified by either precedent or necessity." (Citing
cases.)
POWER OF AGENT TO BIND PRINCIPAL
the Restatement found to be consistent with principle and authority.
The difference can be charged, or credited, to the clear provisions of
the Code; provisions so clear that there appears to be no possibility of
a different construction being put upon them by the courts.
The third basis of A's power under the classification of the Restatement is,
"a power arising from the agency relationship and not dependent upon
authority or apparent authority." 30
Later sections 3' define, more particularly, such powers and the situations giving rise to them. The broadest of these 32 reads:
"A general agent 3 3 for an undisclosed principal authorized to conduct transactions subjects his principal to liability for acts done on his
account,3 4 if usual or necessary in such transactions, although forbidden
35
by the principal to do them."
The distinction between the power here stated to exist and that
based upon apparent or ostensible authority is obvious&3 The latter
terms of course involve a representation by P to T and activity on the
basis thereof.3 7 In the cases contemplated by this section T does not
30 §140(c).
31 §§ 161-178, 194-202.
32 §194.
33One may question the desirability of perpetuating the distinction between
general and special agents. See definition, Restatement, §3, and CAL. CIv. CODE:
§2297. "It is believed, however, that the distinction [between general and special
agents] as it is ordinarily drawn, is highly artificial and unsatisfactory, if not
positively misleading, and that it might well be dispensed with." 1 TMEcnEm,
op. cit. supra note 5, §738.
The framers of the Restatement were fully aware of the desirability of doing
away with the distinction but they were "restating" and bowed to tradition. See
7 Am. L. INST. PROCEznIS (1929) 240. It may be noted that while CAL. Civ.
CODE §2297 draws the distinction, those code sections which deal with "Authority
of Agents" (2304 to 2326) make no marked use of it.
34 See §199 and the Reporter's Explanatory Notes to Tentative Draft No. 4
(1929) p. 27. These Notes, which will be referred to again, were published from
time to time in support of the various Tentative Drafts. They were distributed
among a limited number of members of the profession but are not published with
the Restatement in its final form.
35 Restatement §302 states the corresponding liability of T to the undisclosed
P. Cf. Oliphant, Book Review (1921) 19 MicE. L. Rsnv. 358.
30 1 MECm, op. cit. supra note 5, §§ 721, 722, 1767, appears to sanction the
phrase "apparent authority" in describing this power. ".
.
. So far as third persons
are concerned, this apparent authority is included in the real authority." (§722)
This sounds strange in view bf the learned writer's clear appreciation of the distinction between authority and power (§712).
3"The California cases make it clear that where T relies on the existence of
an ostensible authority he must show that "he himself was cognizant of the facts
which gave color to the alleged ostensible agency and caused him to believe that
the person with whom he dealt was acting in the capacity of an agent." Allen v.
San Francisco, etc., Exchange, sura note 23 at 97, 210 Pac. at 42. The same requirement is sometimes phrased: ". . . the party [TI must believe that the agent
22
CALIFORNIA LAW REVIEW
even know that there is a principal, and clearly, in the absence of such
knowledge, we cannot find the essentials of apparent authority whether
that term is used in the Restatement sense or in the sense of an estoppel authority. 88
The power here set out is not limited to the case of secret instructions, i.e., instructions which P does not intend A to communicate to
T.39 It arises whenever T and A act with reference to things ordinarily
incidental to the authority conferred. P's liability must be predicated
upon a power arising from the relationship. The situation seems somewhat analogous to the liability of a master for the torts of his servant
while the latter is acting within the scope of his employment.4 0
The leading case of Watteau v. Fenwick4 ' will serve to illustrate
the principle. There the owner of a public house instructed his manager
and apparent owner not to buy cigars. The owner, an undisclosed principal, was held liable for the price of the cigars. The case has been
criticized in England2 and in Canada43 but so far as the writer is
had authority, and such belief must be generated by some act or neglect of the
person to be held." Harris v. San Diego Flume Co. (1891) 87 Cal. 526, 528, 25 Pac.
758, 759. Accord: Buckley v. Silverberg (1896) 113 Cal. 673, 679, 45 Pac. 804, 805;
Gosliner v. Grangers' Bank (1899) 124 Cal. 225, 227, 56 Pac. 1029, 1030; Luft v.
Arakelian (1917) 33 Cal. App. 463, 466, 165 Pac. 712, 713; Files v. Derderian
(1919) 44 Cal. App. 256, 258, 186 Pac. 184, 185; Barton v. Studebaker (1920)
46 Cal. App. 707, 722, 189 Pac. 1025, 1034; McMurray v. Pacific, etc., Homes
(1931) 111 Cal. App. 341, 345, 295 Pac. 542, 543. See also cases cited supra note
26. Cf. Hollywood Holding, etc., Corp. v. Oswald (1931) 119 Cal. App. 21, 5 P.
(2d) 963, where an undisclosed P was held liable for the unauthorized act of his A
apparently on grounds of estoppel. The reasoning is difficult to follow. Accord:
Hubbard v. Tenbrook (1889) 124 Pa. 291, 16 Atl. 817; Ernst v. Harrison (1904)
86 N. Y. Supp. 247.
38But cf. Hollywood Holding, etc., Co. v. Oswald; Hubbard v. Tenbrook;
Ernst v. Harrison, all supra note 37.
39 "Secret instructions" are defined in the Restatement, in section 160, as
those "intended not to be revealed." The commonest is of course a limitation
upon the price. The term is often used loosely as indicating any limitation whereof
T is ignorant.
40 See TFANY, op. cit. supra note 5, at 256; Seavey, op. cit. supra note 5, at
or LEGAL LiABirsry (1906) 486 the author sug-
885. In 2 SraazT, FOUNDATiONS
gests: "It must always be borne in mind that the law of principal and agent is
merely a branch of the broader doctrine of master and servant, and a common
principle underlies both." In cases where the fraud of A; in procuring a contract,
is charged to P, the reason given is often ".. . he [A] was acting within the scope
of his employment." Stockton, etc., Works v. Glens Falls Ins. Co. (1893) 98 Cal.
557, 576, 33 Pac. 633, 637.
4t
42
(1893) 1 Q. B. 346.
Pollock, Note (1893) 9 L. Q. Rv. 111; cf. E NOr3S PARTNmzSHP Acr, 53 & 54
Vicr. (1890) c. 39, §5, which was drafted by Sir Frederick Pollock; also cf. Miles v.
McIlwraith (1883) 8 App. Cas. 120 (a Privy Council case). Kinahan & Co., Ltd.
v. Parry (1911) 1 K. B. 459, the latest English case in which the question was
raised, is hardly satisfactory.
-3Becherer v. Asher (1896) 23 Ont. App. 202 draws what appears to be a
POWER OF AGENT TO BIND PRINCIPAL
aware it has been consistently followed in this country where the
question has arisen."
If this power exists in the undisclosed principal cases, it should as
well in the disclosed principal situation, if the latter cases cannot-and
they often can-be based upon apparent authority or estoppel. Yet
when we look to the section4 5 corresponding to the one just quoted,
but dealing with the disclosed and partially disclosed principal, 4 we
find the statement of principle in these words:
"A general agent for a disclosed or partially disclosed principal subjects
his principal to liability for acts done on his account which usually accompany or are incidental to transactions which he is authorized to conduct if,
although they are forbidden by the principal, the other party reasonably
believes that the agent is authorized to do them and has no notice 47 that
the agent is not so authorized." 48
The differences in phraseology are as plain as the reasons therefor
are obscure. Particularly deserving of attention are the words, "the
other party reasonably believes the agent is authorized to do them."
The presence of these words raises two problems: first, the difficulty of
reconciliation with section 194; second, the difficulty of distinguishing
between the power here stated and that based upon apparent authority.
The comments and illustrations under the present section and those
under that dealing with the undisclosed principal situation give no hint
that any different statement of principle was intended. In fact they
seem to proceed consciously on what appears to be the perfectly reasonable assumption that the same principle underlies both sections.49
If we go back of the Restatement as it appears in its final form, we
get no further assistance in the solution of this problem. Thus in the
Reporter's Explanatory Notes to Tentative Draft No. 4 of the Restatement60 where both sections are dealt with, no reference is made to
the differences in phraseology and the whole tenor of the Notes is that
hair-splitting distinction to reach a result favorable to P. In McLaughlin v. Gentes (1919) 46 Ont. L. R. 477, 51 D. L. R. 383, the Ontario Court of Appeals
refused to follow Watteat v. Fenwick, supra note 41, preferring the reasoning of
Miles v. McIlwraith, supra note 42.
44
Collentine v. Johnson (1926) 203 Iowa 109, 202 N. W. 535, 208 N. W. 318;
Bond v. O'Donnell (1928) 205 Iowa 902, 218 N. W. 898; Maxcy Mfg. Co. v.
Burnham (1897) 89 Me. 538, 36 At. 1003; Brooks v. Shaw (1908) 197 Mass. 376,
84 N. E. 110; Dean v. Vice (1919) 234 Mass. 13, 124 N. E. 673; McCracken v.
Hamburger (1891) 139 Pa. 326, 20 Ad. 1051. See also cases reaching the same
result45 via estoppel, supra note 37.
Restatement, §161.
ODefined in Restatement, §4. In the general case law no clear distinction
between the partially disclosed and undisclosed principal is recognized.
47"Notice" is defined in §9.
48 §292 states the liability of T to P under like circumstances.
49 See particularly Comment (b) to §194: "The comment on section 161 is
applicable."
G0 P. 8, et seq.
4
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CALIFORNIA LAW REVIEW
the principle of the undisclosed principal cases applies equally to the
cases provided for by section 161.51 The Reporter's discussion of this
part of the Restatement before the American Law Institute5 2 is to the
53
same effect. No distinction is found in the modern writings on agency.
It seems equally clear from such discussion as preceded the final
adoption of the section that the power stated therein was not intended
to be merely coextensive with that based upon apparent authority. 4
The existence of the section itself would indicate that it was intended
to add another basis of power.
The writer feels that the inclusion in section 161 of the words under
consideration was unfortunate and that they might well have been
omitted. But inasmuch as they are included, it would seem that in the
51 The following citations are taken from the Explanatory Notes to Tentative
Draft No. 4. They deal with disclosed and partially disclosed principal cases.
Butler v. Maples (1869) 9 Wall. (76 U. S.) 766; Three States Lumber Co. v.
Moore (1918) 132 Ark. 371, 201 S. W. 508; Smith v. Jessup & Moore (Del. 1848)
5 Har. 121; Thurber v. Anderson (1878) 88 Ill. 167; Crain v. Nat. Bank (1885)
114 IBl. 516, 2 N. E. 486; Cruzan v. Smith (1872) 41 Ind. 288; Talmage v. Bierhause (1885) 103 Ind. 270, 2 N. E. 716; Gaar, Scott & Co. v. Rose (1891) 3 Ind.
App. 269, 29 N. E. 616; Lewis v. Chapin (1928) 263 Mass. 168, 160 N. E. 786;
Potter v. Springfield Mill. Co. (1897) 75 Miss. 532, 23 So. 259; Hatch v. Taylor
(1840) 10 N. H. 538; Towle v. Leavitt (1851) 23 N. H. 360; Corkite Co. v.
Rell Realty Corp. (1928) 249 N. Y. 1, 162 N. E. 565; Wilder v. Hinckley Fibre Co.
(1923) 97 Vt. 45, 122 AUt. 428; North Eastern Nash Auto Co. v. Bartlett (1927)
10q Vt. 246, 136 At]. 697; Bentley v. Doggett (1881) 51 Wis. 224, 8 N. W. 155;
Smith v. McGuire (1858) 3 H. & N. 554.
At page 13 of the Explanatory Notes the Reporter, Professor Seavey, says:
"The following cases dealing with the undisclosed principal are also inserted as
supporting the rule of this Section [161], as in eaclz case the act was done by a
general agent in the scope of his employment and of course without knowledge by
the other party as to the existence of an authority to affect the principal." There
follows a list of authorities supporting the statement of section 194. See supra
note 44.
52 7 Am. L. INsT. PROCEEDmnGS (1929) 238 et seq.
53 See 1 MzcHxm, op. cit. supra note 5, §§720 et seq., 1767, 1768; TInFANY,
op. cit. supra note 5, at 255 et seq.; Seavey, op. cit. supra note 5, at 877 et seq.
54
In 7 Am. L. INST. PRocEEDINrs 238, Mr. Seavey is reported as saying: "It
has been stated in many cases, or in some at least, that a principal is not bound
by the conduct of an agent in the making of a contract unless the agent was
authorized or apparently authorized. This statement in Section 385 [section 161
in the Restatement as published] goes beyond this." In the Explanatory Notes to
Tentative Draft No. 4 at page 7 et seq., in discussing Smith v. McGuire, supra
note 51, Mr. Seavey says: "It did not appear and seems not to have been material
in the case that the third person knew of the holding-out by the principal. This
prevents the case from being one of apparent authority." And in Comment (b) to
section 161 we read the following: "The rule stated in this section applies to the
case where there is apparent authority, but includes also cases where there is no
apparent authority. Thus the principal may be liable upon a contract made by a
general agent doing a forbidden act usually within the authority of such agents,
although neither principal nor agent has revealed to the third person the extent of
the agent's authority."
POWER OF AGENT TO BIND PRINCIPAL
interests of consistency and in order that the section may conform to
the authorities upon which it is based, the words must be construed as
requiring of T nothing more than good faith, or, in the alternative,
they must be construed to mean that T's belief would be reasonable,
though resting solely on A's representations as to his authority,5 5 often
evidenced only by the doing of the prohibited act. The reader may
well feel that such an interpretation twists the ordinary meaning of the
expression "reasonably believes." Discussion of the problem by courts
and writers should be of interest.
We turn to the California law and curiously enough no case directly
in point has been found. The emphasis placed upon estoppel in connection with ostensible authority would lead one rather to assume that
apart from either authority or estoppel P is not bound. This would, of
course, rule out powers arising simply from the agency relation.
Many cases discuss the effect of secret or private instructions 56 and
the following statements are typical:
"The principal cannot by private communications with his agent limit
the authority he allows the agent to assume' 57
"... a limitation upon the powers of a general agent is not binding upon
third persons dealing with him as such unless called to their attention." 58
But in cases using this kind of language it appears that the result,
where P is held, can be explained either on an estoppel basis or on the
grounds of an actual, though implied authority. In neither case is the
problem squarely presented.
Superficially section 2319(1) of the Civil Code bears a close resemblance to section 161 of the Restatement as set out above. The
former provides that an agent has authority,
"to do everything necessary or proper and usual, in the ordinary course
of business, for affecting the purpose of his agency." 59
55 This would seem implied in Comment (c) to section 161 where we read:
"A principal is subject to liability if his general agent to sell gives a customary
but forbidden warranty to a third person who does not know that it is customary
to warrant but believes from what the agent tells him that the agent has authority
to give the warranty." See also Illustration 1 to this section.
55
Hoskins v. Swain (1882) 61 Cal. 339; Heald v. Hendy (1891) 89 Cal. 632,
27 Pac. 67; Whitton v. Sullivan (1892) 96 Cal. 480, 482, 31 Pac. 1115; Browning v. McNear (1910) 158 Cal. 525, 529, 111 Pac. 541, 542; Leavens & Pinkham
v. McKevitt (1912) 164 Cal. 242, 128 Pac. 399; Robinson v. American Fish, etc.,
Co., supra note 23, at 219, 119 Pac. at 390; Rattray v. Wickersheim Co. (1918)
36 Cal.App. 253, 258, 171 Pac. 964, 966; Henry Cowell, etc., Co. v. Santa Cruz,
etc., Bank, supra note 23; Burns v. McCain (1930) 107 Cal. App. 291, 290 Pac.
623; Fairbanks v. Crump Irrig., etc., Co., supra note 23, at 209, 291 Pac. at 634;
Van Buren v. Green (1932) 120 Cal. App. 461, 7 P. (2d) 1079.
57 Eddy v. American Amusement Co. (1913) 21 Cal. App. 487, 490, 132 Pac.
83, 85.
58 Thomas v. Fursman (1918) 39 Cal. App. 278, 284, 178 Pac. 870, 873.
59 See also CAL. Civ. CODE §§ 2323 to 2326 which appear to be specific
applications of the general §2319(1).
22
CALIFORNIA LAW REVIEW
This section is usually referred to in the cases which speak of private
instructions. Bearing in mind that it is phrased in terms of authority
and bearing in mind the Code definition of actual authority, it would
appear that section 2319(1) can only come into play in the absence of
an agreement between P and A to limit these acts which are "proper
and usual in the ordinary course of business for affecting the purpose
of the agency." In other words, section 2319(1) is only a declaration
of an actual, though implied, authority to do incidental acts. If there
is a prohibition from P to A as to these acts A has no authority and
section 2319(1) does not affect the case though the doctrine of estoppel
may. In a recent case, the supreme court says: "An agent also has
such authority as is given by statute (Cal. Civ. Code secs. 2304 et seq.)
unless deprived thereof by his principal." °
This conclusion as to the proper construction to be placed on section 2319(1) appears inevitable when read with the section which
immediately precedes it and which provides:
"Every agent has actually such authority as is defined by this title,
unless specially deprived thereof by his principal, and has even then such
authority ostensibly, except as to persons who have actual or constructive
notice of the restriction upon his authority." 6 l
Were it not for the presence of this section it would be arguable
that the incidental authority section, 2319(1), should be construed as
qualifying the Code definition of actual authority. 62 Under this construction by reading the two sections together the result would be: A
has such authority as P confers upon him and in addition thereto, despite restrictions, he has, as to third persons ignorant of such restrictions, authority to do such things as are normally incidental to the
authority granted. The result would agree with the Restatement, as
above construed, though at the cost of the anomaly of A having an
authority as to T though none exists as between himself and P. Section
2318 appears conclusively to forestall this method of reconciliation. If
A is deprived of authority such as is granted by section 2319(1), T
must rely on ostensible authority with the California implications of
that term.
The same section (2318) closes an even less plausible avenue of
effecting an agreement which would be reached by construing the word
"authority" in such a section as 2319(1) as meaning "power." The
difficulty of such a construction is not lessened by the appearance of
Ernst v. Searle, supra note 27 at 635, 22 P. (2d) at 716. (Italics added.)
61 §2318.
62 §2316, supra note 8.
6 See supranote 36.
80
POWER OF AGENT TO BIND PRINCIPAL
the word "power" in the very next section 64 of the Code. This would seem
to suggest that the framers of the Code had some notion, vague and
inaccurate though it might have been, of the distinction between power
and authority. The inference that they meant "authority" when they
used the word is strengthened.
It seems clear then that as the law stands at present the only true
agency basis of power recognized in California is that which rests upon
authority. Unless such a basis is present T, to hold P, must rely on
the doctrine of estoppel, which of course is not based on agency principles. This result is accounted for by the archaic provisions of the
Civil Code which were drafted in the heyday of the subjective theory
of contracts and during a period when the distinction between power
and authority was not appreciated. Certainly the law of agency had
reached no degree of maturity by the middle of the last century. Its
codification, to the extent that it was codified by the Field Code,
served to crystallize immature lavV and cramp growth, as premature
codification inevitably does.
If the bases of A's power as set out in the Restatement are sound,
and it is submitted that, as construed above, they are, both on principle and the authority of the general case law, it might be well to bring
the Civil Code of California into line in the small field discussed.
Sigvald Nielson.
ScHooL o0 LAw,
STANFORD UNIvEsrr.
64 §2320 (dealing with an "agent's power to disobey instructions"). Did the
framers not mean authority to disobey? Cf. Restatement, §47, raising an "inference
of authority to act in an emergency."